In the world of properties and real estate, many of us feel that it is very difficult to be educated and stay updated about the variety of terms used, the computations that are crucial for our taxes, the laws and its variations in every locality, and other important information that every adult individual living in the United States are expected to and should absolutely know of.
If you have a property in the U.S., you know that with it comes responsibilities you will have to take care of by yourself. You should pay a property tax every year that will be computed using various details, such as the value of your property and the tax rate that may be high or low, depending on where it is located. Also, if you planning to sell your property or put it in as a mortgage, you will need to have it appraised by a professional, which can also be the determiner of how much your property will sell.
Two of the terms that most property owners hear (and may be unsure of what it exactly means) are “Appraised Values” and “Assessed Values.” These terms are sometimes used interchangeably, which is why many people think that they are the same. However, they are not. Each of them is estimated using a different process and is used for an entirely different matter.
Although it can be a bit overwhelming, there is no need to worry about how to distinguish the two, as we are here to help you dissect the terms and will be here to assist in determining which one is usually higher in estimated value.
Is appraised value and assessed value basically the same? If not, which one is higher?
As mentioned above, the appraised value and the assessed value of a property are two entirely different matters. Although they are terms that are both used in real estate, they differ in various ways.
It is important for a property owner to distinguish the two, as they might be surprised when they are in the process of selling their property or when it is time for them to pay their property tax, which is usually paid annually.
In many cases, it is normal for the appraised value to be higher than the assessed value of the property. Before we know the reasons why, we will need to know and define each term first so that it will be easier for us to understand why it is more common for the appraised value to be higher in amount, and how it is different from an assessed value.
What does appraised value mean?
The appraised value of a property means that it is the estimated amount that the particular property will possibly sell for. In other words, this value is what a prospective buyer is willing to pay to the seller that will also be fair to the latter, with the amount that is ideally preferable to both so that no party will feel lowballed and cheated.
Also called the market value or market price, the appraised value will be the valuated amount of the property until both the seller and buyer will eventually come to an agreement on the amount that will close the deal.
The appraised value of a property is determined by appraisers, which are the professionals who will do an inspection of the property and will do some comprehensive research about other properties that are similar to the one that is currently being appraised.
How is the appraised value of a property determined?
As mentioned above, appraisers will be the experts who will conduct inspections to arrive at an estimate. Depending on the reason why you are ordering an appraisal, the appraiser can be hired by you or can be hired by your lender if you are planning to sell or is applying for a loan or mortgage.
When you or your lender has ordered an appraisal, the appraiser will conduct various researches that will help them arrive at a certain valuation.
They will take a look at the following:
- Your property’s comps.
Comps, or comparables, are properties that are similar in many ways to the property you own. They can be the same in the number of bathrooms, bedrooms, year of construction, or area that it is located. Comparables are very helpful as it shows how much did a similar property like yours sell recently, and can also be a guide on how much will your property realistically be valued in the current market with the specifications and features that it has.
- Your property’s exteriors.
From the minute they will drive into your property, appraisers will observe its overall curb appeal. This is one of the most important factors among many others that can determine how high or low your property’s appraisal value will be. This is the reason why many real estate agents recommend people to invest in their landscaping, as it is yields high in ROI or return of investment.
- Your property’s interiors.
Of course, the interior of your property will be the greatest factor that will affect the appraisal value of your home. Appraisers will inspect each room and count how many bedrooms, kitchens, bathrooms, and other features are present in the property. They will also measure the sizes of the rooms and check the state of the fixtures and the property’s heating, ventilation, and air conditioning or HVAC system.
- The current market condition.
Unfortunately, the value of a certain property will change, and this can happen in just a course of a couple of months. This is because the real estate industry is known to be fickle, as it will ultimately rely on the condition of the market which can be affected by different factors such as the current demand. If there too many properties that are being sold or if there is a recession that is happening, it can definitely affect the appraised value of your property. Due to this reason, it is recommended to order appraisals every two years.
What does assessed value mean?
The appraised value of a property means that it is the estimated amount set by a professional that will usually determine how much would a property sell in the current market. On the other hand, the assessed value signifies the worth or amount that the local government or municipality has assigned to a certain property within their jurisdiction. A property’s assessed value is necessary as it determines how much amount does the owner has to pay yearly for his or her property tax.
What does property tax mean?
In the United States, it is common for people to have to pay certain taxes, just like in other countries. Some types of taxes are federally imposed, meaning, all adult residents that are staying in the country must pay it, such as the income tax that is taken from your wages and income.
There are also taxes that are locally imposed, which means that each municipality is given the right to set their own tax rates and collect them, however, these are still regulated and should be within the range that is still payable and within reach of the residents.
One example of a locally imposed tax is a property tax. A property tax is a type of tax that is assigned to individuals or companies that own a property. Although the definition of a “property” can be different depending on each state, as local governments may or may not include moveable such as cars and furniture items within the category of property, while others would only consider land and buildings as a property.
What do property taxes have to do with the assessed value of a property?
The main reason why the assessed value in a property is implemented in the first place is because of property taxes. From the local government’s viewpoint, the method they can do to make sure that the taxes are collected in a fair manner is by implementing the value of the tax that needs to be paid by the property itself.
Picture this: If the property tax in a city is collected using a flat rate of around $2,000 for each property owner to be paid each year, this would be very unfair for owners who have smaller and lower in value properties. It is only right for owners who have more expensive properties to be charged at a rate that will correspond to the value of their possessions.
Because of this, the concept of assessed value is being practiced up to this day. The value of property tax rates also differ in various cities as other factors would also come into the equation, such as the average income of residents, the estimated cost of living in the area, and many more. For example, some states such as Oregon and Indiana are considered to have lower property taxes when compared to other states such as New Jersey, which pays the highest property tax in the United States.
How is the assessed value of a property determined?
When it comes to getting the assessed value of the property you own, the location where it is in will determine how much tax rate you will have to pay. Because tax rates differ in each state, it is normal to pay a different amount of tax for the property you have in Washington from the one that you own in Utah. Assessed values are ad valorem, which means that it would differ depending on the value of the property itself.
Before knowing how much you need to pay yearly for your property tax, you will also need to know how much the assessed value of your property is. An assessor will be assigned to do an inspection of your property for the government to impose the value of your property. This can be done every year or every couple of years, depending on the need to do so which will be determined by the assessors.
As mentioned above, the assessor will be dispatched by the local government and will conduct the necessary inspection on your property.
They will take a look at the following:
- Your property’s physical features.
Depending on your assessor, they may or may not actually visit your property. It is possible for them to only look at the papers from your mortgage company, such as the size of your property and other features that are on it. Of course, you should not expect them to always do this, as some will also visit your area.
- Your property’s comps.
Just like what happens in appraisals, assessors will also look at other important data that will be relevant for them to be able to arrive at a conclusion of how much will be the assessed value of your property.
- The current market condition.
As always, the condition of the real estate market will definitely affect the assessed value of your property. This can be good or bad, depending on the situation. If the assessed value in your property has risen for the year, you will also need to pay a higher amount when it comes to your taxes. However, if your assessed value has become less, it will also decrease the amount of property tax that you have to pay.
How property taxes are computed
The formula that is usually used in determining how much tax a property owner will have to pay every year is the following:
Net Assessed Value of the Property X Local Tax Rate = Annual Property Tax
Of course, this may differ in some states, as others may implement other regulations per jurisdiction. For example, if your property is located in Indiana which has a tax rate of 0.82% with an assessed property value of $300,000, you may need to pay a tax of around $2,430 every year. On the other hand, if your property is located in New Hampshire which has a tax rate of 2.5% with a similar assessed value of $300,000, you will need to pay a yearly amount of property tax worth $6,150.
In order for you to arrive at an accurate value of the property tax in your area, it would be best to do an extensive research, as you will not want to pay the wrong amount for your taxes.
Why is the appraised value of a property often higher than its assessed value?
Many property owners may have noticed that the value that came from their appraisal report may be different from the one that has been assessed by the assessor. Oftentimes, the appraised value of their property is higher compared to the assessed value. This is because the process of appraisals is done in a more in-depth manner.
Appraisers will surely do an inspection of a property, while assessors may choose not to do a property visitation. Because of this reason, appraisers have the opportunity to see each feature of the house and look at its value in a more discerning manner, which usually results in a higher appraisal value.
Also, it is important to note that compared to appraisals that can be very beneficial to owners as it can be a reference to the amount of how much their property will sell, assessments will determine how much the owner will have to pay every year for their property tax. This is why many owners would want a lower assessed value which will also be equivalent to lesser fees.
Can you challenge the result of your property’s appraisal?
There are times when the appraisal report may arrive at a value that owners do not agree with. When this happens, it is absolutely possible to request for a rechecking or a clarification. However, before doing so, it is important to remember the following:
- Appraisals are a form of art.
When a property is appraised, an appraiser will follow a standard form to check your property’s worth. Despite that, a certain feature in your home may yield in an increase to the value of your property from a certain appraiser, but may lower its value when assessed by another expert. This is why it is possible for two appraisers to arrive at two entirely different assessments and calculations.
- Appraisers are licensed professionals.
Appraisers are third-party professionals, and will not take sides between lenders and property owners. Some people might think that appraisers are biased, but this is absolutely not the case. Most states in the U.S. require aspiring appraisers to get their licenses before they will be able to practice in their chosen area.
- Property owners themselves can be biased.
As the owner, it is understandable that you would want to receive a high appraisal value for your property, but this can also be the reason why you do not agree with the appraisal report.
You can request for a reassessment by contacting your appraiser properly. It would be best if you can talk to them professionally while asking how they arrived at their estimated value. Thoroughly inspect the appraisal report and see if the data that was gathered are accurate.
If you want to, you can also ask for a second opinion from another appraiser, though this may not be honored if you are ordering an appraisal for loan and mortgage purposes. Before requesting one, it would be best to include your lender in the process so that they are aware of the result.
We are happy to hear from you. Contact us for any of your appraisal needs. From residential to commercial, divorce to estate tax and trust, we do it all.
- Estate tax
Fort Wayne, IN 46803